Hurdle Rates for Overseas Projects
HANDBOOK OF FINANCE, Fabozzi, 2008
27 Pages Posted: 2 Jan 2007 Last revised: 12 Sep 2017
Date Written: December 19, 2012
How should a multinational manager estimate the cost of capital for an overseas investment? We provide a guide, synthesizing various contributions in the literature, and considering both systematic risk and political risk. We use a country’s sovereign credit default swap rate to proxy for the country’s political risk premium. We also review the conversion of an international investment’s cost of capital between currencies.
Keywords: Overseas investment, operating beta, hurdle rate, cost of capital, country beta, political risk, sovereign credit default swap, foreign exchange, currency beta, beta unlevering
JEL Classification: G13, G32
Suggested Citation: Suggested Citation